BNR estimates for 2014 a 3.2 pc increase of consumer prices. According to Governor Mugur Isarescu, the influence of the political crisis of 2012 and of elections on the devaluation of the exchange rate was “more than evident.”
The National Bank of Romania (BNR) maintains of the inflation rate forecast for 2013 at 3.5 pc and estimates an increase of consumer prices by 3.2 pc in 2014, the governor of the Central Bank, Mugur Isarescu said yesterday in a press conference dedicated to the annual report on inflation.
“For these forecasts, we rely on the fact that the factors that pushed the inflation upwards are transitory, we do not rely on two agricultural years that will be good, but normal. We have the experience that a good agricultural year is succeeded by one at least normal. Moreover, we do not have an inflation driven by soaring demand, as CORE 2 has evolved it was almost stable, which means that we have a correct calibration of the monetary policy and want to maintain it as such. In the future, we will try to keep this calibration correct,” the governor explained.
He added that, abroad, the balance of risks is well-settled, with certain uncertainties regarding the time needed to restore the economy of the European Union, with the volatility of the exchange rate against the EUR. Mugur Isarescu also noted the influence of the political crisis of 2012 upon the exchange rate. “It is more than evident that the political crisis of last summer and the electoral year had a say in the depreciation of the exchange rate,” the governor explained, adding that the evolution of the RON was “in inverse proportion with the evolution of the exchange rate of the other south-east European currencies” taken into consideration by BNR.
As for the short-term prices of raw materials on the international market, the balance of risks is even, without major risks for the time being.
“(…) In terms of administered prices, we consider that there are risks of going upwards unplanned, so at this last factor we may have an overreaction,” the BNR governor said.
Isarescu mentioned that in the last quarter of 2012 inflation was positively influenced by the correction of the prices of volatile foodstuff, a downward trend of the international quotations of crude oil, the nominal appreciation of the RON against the USD and the EUR towards the end of the year, and a wide deficit of demand. A negative contribution went to the increases of some administered prices, for electricity and thermal energy and natural gas, the increase of inflationist expectations over a short term, the gradual assimilation into consumer prices of the costs with vegetal raw materials.
Stimulate demand by increasing wages would lead to economic growth based on import, which is unsustainable, and from the political point of view is “almost suicidal” because the government can not take back after giving, says central bank governor Mugur Isarescu. In his turn, Cristian Popa, central bank vicegovernor said non perfoming loans will continue to rise in the short term and the evolution depends on the economic growth prospects and consumer confidence, but also on the willingness of banks to finance.
As for the CORE 2 inflation rate, it had an evident trend upwards during August-October, then it calmed down. “Prices remained constant in adjusted CORE 2, which is remarkable,” Isarescu said. After the meeting of the Board Tuesday, when BNR decided to maintain the key interest rate at the historic level of 5.25 pc, Isarescu said that the Central Bank estimates an inflation rate of 5-6 pc in the first half of the year, then it will decrease, but its level will largely depend on the evolution of volatile prices, such as those in agriculture. According to the updated forecast, the annual inflation rate will return to the upper limit of the target interval at the end of 2013, after a transitory increase in the first half of this year, mainly driven by wider adjustments of administered prices.
Committee in charge with the adoption of the EUR
The BNR committee in charge with the adoption of the EUR will present, this month, to the BNR Board and the government a document with proposals regarding the adoption target of the European single currency, the BNR governor announced. As for the target horizon assumed by the pertinent institutions, including the Central Bank, for the adoption of the EUR, Mugur Isarescu said that no such deadline has been defined yet. He explained that the activity of the committee in charge with the adoption of the EUR has not been interrupted within the BNR.